Exclusive: Alibaba Sinks $250 Million Into Messaging App Tango, Valuing It At ...

Tango founders Uri Raz and Eric Setton; photo via Tango

China's Alibaba is the latest Internet giant to make a bet on the messaging space, and it's a big one. The company is spending $215 million for a minority stake in the messaging and free-calling app Tango, the startup revealed today.

The investment is part of a $280 million funding round that Alibaba is leading, which also will see other current investors in Tango stump up more capital.

The round values Tango at $1.1 billion, based on a regulatory filing sourced by research firm VC Experts, who estimate that Alibaba's stake lies somewhere between 20 and 25%. A source close to the deal confirmed the estimate.

Tango, based in Mountain View, Calif., would not comment on its valuation or the size of Alibaba's stake.

The deal comes just weeks after Rakuten , the Japanese e-commerce giant, bought Tango-rival Viber for $900 million, and Facebook spent $19 billion in cash and stock on the global messaging behemoth WhatsApp, which boasts 480 million active users.

The flurry of deals underscores a surge in confidence by investors in the the money-making possibilities of mobile messaging services.

Apps like Tango, Viber and WhatsApp allow users to send free texts or make free calls over a data connection. They pose a growing threat to traditional carriers by siphoning away the fees people normally pay for texts and calls.

They are also challenging incumbent social media giants like Facebook and Alibaba, which is planning to list itself in the U.S. later this year in what is likely to be one of the biggest public offerings in Internet history.

Tango is among a collection of messaging services that are broadening themselves out to become social platforms on which users not only communicate, but play games and share photos as they might through Facebook.

Asian messaging services like Kakao, LINE and WeChat have pioneered this platform strategy. Japan's LINE, for instance, booked revenues of $338 million in 2013 from selling games, sponsored content and digital stickers.

Though it's unclear if five-year-old Tango is profitable, the company derives about half its sales from advertising and half from selling games. It has 200 million registered users, 70 million of whom are active on a monthly basis.

Having started as a video-calling application to rival Skype and Apple's FaceTime, the service has pivoted to become 'a mobile social network built around communication,' co-founder Eric Setton says.

Tango's CEO, Uri Raz and Setton had been in talks with Alibaba since late last year, well before the Rakuten and Facebook deals. The founders went on to meet with Alibaba's billionaire founder Jack Ma in China several weeks ago.

Both companies were introduced by intermediaries, but the deal was helped along by one of Tango's early investors, Yahoo co-founder Jerry Yang. Yang runs the investment fund Ame Cloud Ventures and is a long-time friend and acquaintance of Alibaba's Ma. Yahoo also owns 24% of Alibaba. 'Alibaba very much like what Tango wants to do, and Tango felt Alibaba could be a good investor,' says Yang. 'Tango as a messaging platform is enabling a lot of commerce and content. That is clearly, I think, an area of interest to Alibaba.' Should we expect to see more money go into messaging services from Asian investors, considering how successful messaging businesses there have been till now? 'I think there's going to be more money from Asia, period,' Yang says. 'I think Alibaba is going to do more.'

Correction: An earlier version of this story said Alibaba had invested $250 million into Tango. The correct figure is $215 million.

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